Yes, I realize that Marx’s labor theory of value is not popular nowadays. I think that is a mistake. I think even investors would get a better descriptive model of reality if they adopted it for their own uses. That is what I am trying to do myself. I could care less about overthrowing capitalism. Instead, let me milk it for all I can....
As for “labour crystallised in the product,” that’s not how I think of it, regardless of however Marx wrote about it. (I’m not particularly interested in arguing from quotation, nor would you probably find that persuasive, so I’ll just tell you how I make sense of it).
I interpret the labor-value of something (good or service) as the relative proportion of society’s aggregate labor that must be devoted to its production in order to, with a given level of productivity of labor, reproduce that good or service sustainably over the long-term. Nothing gets crystallized in any individual product. That would be downright metaphysical thinking.
After all, just because an individual item has a certain labor-value doesn’t mean that it will individually automatically fetch a certain price. It is not the individual labor-value that influences price. A pair of sneakers made by a factory that is half as efficient as the typical sneaker factory does not have twice the labor-value or fetch twice the price. What matters is the “socially-necessary” labor expended on an item. And how can that be perceived? On average in the long-run, if a particular firm’s service or production process does not yield an average rate of profit, then that is society’s signal, after-the-fact, that some of the labor devoted to that line of production is not being counted by society as having been “socially-necessary” labor. (Of course, technological change can lower the socially-necessary labor for a certain line of production, which will appear as falling prices (assuming a non-depreciating currency) through competition and below-average profits for any firms still using old techniques that waste labor that is now socially-unnecessary).
If business owners were to rely on a crude, metaphysical interpretation of Marx’s labor theory of value that assured them that the value was already baked into their product as soon as it rolled off the production line, they would be unpleasantly surprised if it were to turn out that they could not realize the expected labor-value in their product...perhaps due to something like their competitors having, in the intervening time, embarked upon a technological innovation that changed society’s unconscious, distributed calculation of what labor was “socially-necessary” for this line of production....
As for your final questions: it’s a bit complicated, to say the least. There are even various schools of Marxists that don’t agree with each other.
I think there is somewhat of a consensus that there is a real long-term tendency for the (real, inflation-adjusted) world rate of profit to fall, theoretically and empirically, and therefore you can expect there to be an ever-decreasing ceiling on how high (real) interest rates can go during a business cycle before they begin to eat up all of the profit rate and leave nothing for net profit of enterprise, thus precipitating a decline in production and a recession. (Although some Marxists reject that there is a theoretical or empirical tendency for the rate of profit to fall. See Andrew Kliman’s book “The Failure of Capitalist Production” if you are interested in this “exciting” debate).
More controversial still is the question of what, if anything, monetary policy can do to influence interest rates and aggregate purchasing power to prevent future recessions. I concur with what I call the “Commodity-Money” school (see Ernest Mandel’s work on “Marx’s Theory of Money”, Sam William’s “Critique of Crisis Theory” blog, or the writings of Jon Britton) that argues that there is actually very little that monetary authorities can do to alter the course of business cycles because paper currencies, while they are no longer legally tied to commodity-money, remain tied to commodity-money in a practical sense, and that movements in the world production of commodity-money place practical limits on what authorities governing paper currencies can do.
I don’t have the patience to explain all of this here in greater depth when others have already done so elsewhere. Sam Williams’s “Critique of Crisis Theory” blog is what I would recommend reading from the top to get the clearest explanation of this stuff.
By the way, my “commodity-money” understanding of Marx’s labor theory of value leads me to believe that we are currently entering a boom phase in the business cycle in which equities, on average, will continue to perform well. (I have holdings in Vanguard Total World Stock (VT), for your information. It is a very simple instrument for tracking the world economy with low management fees). So, expect accelerating growth for 3-4 years. Towards the end of that period, I expect an oncoming credit crisis and recession to be heralded by world gold production to start declining slightly and interest rates to be inching upward to a dangerous level infringing on the net profit of enterprise (hence, why a theory of the expected average rate of profit is so useful!)...with little that the Federal Reserve or other monetary authorities will be able or willing to do about it due to the fear of depreciating paper currencies with respect to commodity-money too much. Business will continue to apparently boom for a short while longer, but it will be in its unsustainable credit-boom phase by that point, and it will be time to cash out of equities and into commodity-money (gold).
But the question is, what does using this framework give you? Which falsifiable predictions flow out of it, predictions which are contested by mainstream economics? As you recall, Marx predicted how history will develop and he turned out to be wrong.
Your answers tend to follow the first iron law of the social sciences: “Sometimes it’s this way, and sometimes it’s that way.” and sure, the future is uncertain, but then why is the Marxist theory of value better than any other one?
I appreciate you giving a specific scenario for the world economy, but it looks entirely mainstream to me. I doubt you will have trouble finding conventional economists who will look at it and nod, saying “Yep, that’s very likely”. Though you might keep in mind that post-2008 the central banks around the world have dumped huge amounts of money into their economies, amounts that many if not most economists thought would trigger significant inflation. And… it didn’t happen. At all. So that “fear of depreciating paper currencies with respect to commodity-money” could be baseless. Or maybe not X-D—macroeconomics is really in disarray these days.
What does this framework give me? Well, I bet that I’ll be able to predict the onset of the next world economic crisis much better than either the perma-bear goldbugs of the Austrian school, the Keynesians who think that a little stimulus is all that’s ever needed to avoid a crisis, the monetarists, or any other economist. I can know when to stay invested in equities, and when to cash out and invest in gold, and when to cash out of gold and buy into equities for the next bull market, and so on and so on. I bet I can grow my investment over the next 20 years much better than the market average.
There are plenty of mainstream economists who will warn from time to time that there might be a recession approaching within the next few years. But what objective basis do they ever have for saying this? Aren’t they usually just trying to gauge fickle investor and consumer “animal spirits”? And how specific and actionable are any of their predictions, really? Can an investor use any of them to guide trades and still sleep well at night and not feel like a dupe who is following some random guru’s hunch?
To time the cycles, I do not need to rely on fickle estimations of consumer confidence or any unobservable psychology like that. There are specific objective numbers that I will be keeping an eye on in the coming years—indicators that are not mainstream, including Marxist authors’ estimations of the world average rate of profit, the annual world production of physical gold, and the annual world economic output as measured in gold ounces (important!). No mainstream economist that I know—even Austrian goldbugs—think that world gold production has a casual role in world economic cycles.
Yes, it does not surprise me that most economists were wrong about the expected inflation from quantitative easing. They could not foresee that most of this money would not enter circulation or act as a basis for additional multiples of credit creation on top of it that would enter circulation. They could not foresee that this QE money would sit inert for the time being as “excess reserves” due to central bank payment of interest on these excess reserves that was competitive with other attainable interest rates on the market. In reality, these excess reserves—so long as interest is paid on them—are not typical base money, but instead themselves function more like interest-bearing bonds. Heck, I didn’t even have to know anything about Marxism to anticipate that!
Now, here’s a concrete prediction: if the Federal Reserve were to decide to cease all payment of interest on excess reserves without also at the same time unwinding the QEs, leaving a permanently-swollen monetary base of token money that then has the incentive to be activated as the basis for many multiples of loans to be made on top of it—then you will see continued depreciation of the dollar with respect to gold.
Thankfully, though, I am not relegated to trying to mind-read what the Federal Reserve will do because my strategy of trading between equities and gold is only concerned with the relative prices between those two. I will come out ahead in real terms by correctly timing relative changes in their prices, regardless of whatever happens to their nominal dollar prices as a result of Federal Reserve shenanigans. And I would argue that, on average over the medium to long run, the Federal Reserves operations are neutral with respect to these relative prices. The Federal Reserve can change the nominal form of crises (whether they take the appearance of unemployment, dollar-inflation, or some intermediate admixture of the two like 1970s stagflation), but the Federal Reserve cannot actually influence the relative movements of equities and gold. If, thanks to incredibly dovish Federal Reserve policy in response to the onset of a crisis, equities continue to appreciate in dollar terms, gold will be appreciating even more.
Yes, I realize that Marx’s labor theory of value is not popular nowadays. I think that is a mistake. I think even investors would get a better descriptive model of reality if they adopted it for their own uses. That is what I am trying to do myself. I could care less about overthrowing capitalism. Instead, let me milk it for all I can....
As for “labour crystallised in the product,” that’s not how I think of it, regardless of however Marx wrote about it. (I’m not particularly interested in arguing from quotation, nor would you probably find that persuasive, so I’ll just tell you how I make sense of it).
I interpret the labor-value of something (good or service) as the relative proportion of society’s aggregate labor that must be devoted to its production in order to, with a given level of productivity of labor, reproduce that good or service sustainably over the long-term. Nothing gets crystallized in any individual product. That would be downright metaphysical thinking.
After all, just because an individual item has a certain labor-value doesn’t mean that it will individually automatically fetch a certain price. It is not the individual labor-value that influences price. A pair of sneakers made by a factory that is half as efficient as the typical sneaker factory does not have twice the labor-value or fetch twice the price. What matters is the “socially-necessary” labor expended on an item. And how can that be perceived? On average in the long-run, if a particular firm’s service or production process does not yield an average rate of profit, then that is society’s signal, after-the-fact, that some of the labor devoted to that line of production is not being counted by society as having been “socially-necessary” labor. (Of course, technological change can lower the socially-necessary labor for a certain line of production, which will appear as falling prices (assuming a non-depreciating currency) through competition and below-average profits for any firms still using old techniques that waste labor that is now socially-unnecessary).
If business owners were to rely on a crude, metaphysical interpretation of Marx’s labor theory of value that assured them that the value was already baked into their product as soon as it rolled off the production line, they would be unpleasantly surprised if it were to turn out that they could not realize the expected labor-value in their product...perhaps due to something like their competitors having, in the intervening time, embarked upon a technological innovation that changed society’s unconscious, distributed calculation of what labor was “socially-necessary” for this line of production....
As for your final questions: it’s a bit complicated, to say the least. There are even various schools of Marxists that don’t agree with each other.
I think there is somewhat of a consensus that there is a real long-term tendency for the (real, inflation-adjusted) world rate of profit to fall, theoretically and empirically, and therefore you can expect there to be an ever-decreasing ceiling on how high (real) interest rates can go during a business cycle before they begin to eat up all of the profit rate and leave nothing for net profit of enterprise, thus precipitating a decline in production and a recession. (Although some Marxists reject that there is a theoretical or empirical tendency for the rate of profit to fall. See Andrew Kliman’s book “The Failure of Capitalist Production” if you are interested in this “exciting” debate).
More controversial still is the question of what, if anything, monetary policy can do to influence interest rates and aggregate purchasing power to prevent future recessions. I concur with what I call the “Commodity-Money” school (see Ernest Mandel’s work on “Marx’s Theory of Money”, Sam William’s “Critique of Crisis Theory” blog, or the writings of Jon Britton) that argues that there is actually very little that monetary authorities can do to alter the course of business cycles because paper currencies, while they are no longer legally tied to commodity-money, remain tied to commodity-money in a practical sense, and that movements in the world production of commodity-money place practical limits on what authorities governing paper currencies can do.
I don’t have the patience to explain all of this here in greater depth when others have already done so elsewhere. Sam Williams’s “Critique of Crisis Theory” blog is what I would recommend reading from the top to get the clearest explanation of this stuff.
By the way, my “commodity-money” understanding of Marx’s labor theory of value leads me to believe that we are currently entering a boom phase in the business cycle in which equities, on average, will continue to perform well. (I have holdings in Vanguard Total World Stock (VT), for your information. It is a very simple instrument for tracking the world economy with low management fees). So, expect accelerating growth for 3-4 years. Towards the end of that period, I expect an oncoming credit crisis and recession to be heralded by world gold production to start declining slightly and interest rates to be inching upward to a dangerous level infringing on the net profit of enterprise (hence, why a theory of the expected average rate of profit is so useful!)...with little that the Federal Reserve or other monetary authorities will be able or willing to do about it due to the fear of depreciating paper currencies with respect to commodity-money too much. Business will continue to apparently boom for a short while longer, but it will be in its unsustainable credit-boom phase by that point, and it will be time to cash out of equities and into commodity-money (gold).
Yes, that’s still classical Marxism, isn’t it?
But the question is, what does using this framework give you? Which falsifiable predictions flow out of it, predictions which are contested by mainstream economics? As you recall, Marx predicted how history will develop and he turned out to be wrong.
Your answers tend to follow the first iron law of the social sciences: “Sometimes it’s this way, and sometimes it’s that way.” and sure, the future is uncertain, but then why is the Marxist theory of value better than any other one?
I appreciate you giving a specific scenario for the world economy, but it looks entirely mainstream to me. I doubt you will have trouble finding conventional economists who will look at it and nod, saying “Yep, that’s very likely”. Though you might keep in mind that post-2008 the central banks around the world have dumped huge amounts of money into their economies, amounts that many if not most economists thought would trigger significant inflation. And… it didn’t happen. At all. So that “fear of depreciating paper currencies with respect to commodity-money” could be baseless. Or maybe not X-D—macroeconomics is really in disarray these days.
What does this framework give me? Well, I bet that I’ll be able to predict the onset of the next world economic crisis much better than either the perma-bear goldbugs of the Austrian school, the Keynesians who think that a little stimulus is all that’s ever needed to avoid a crisis, the monetarists, or any other economist. I can know when to stay invested in equities, and when to cash out and invest in gold, and when to cash out of gold and buy into equities for the next bull market, and so on and so on. I bet I can grow my investment over the next 20 years much better than the market average.
There are plenty of mainstream economists who will warn from time to time that there might be a recession approaching within the next few years. But what objective basis do they ever have for saying this? Aren’t they usually just trying to gauge fickle investor and consumer “animal spirits”? And how specific and actionable are any of their predictions, really? Can an investor use any of them to guide trades and still sleep well at night and not feel like a dupe who is following some random guru’s hunch?
To time the cycles, I do not need to rely on fickle estimations of consumer confidence or any unobservable psychology like that. There are specific objective numbers that I will be keeping an eye on in the coming years—indicators that are not mainstream, including Marxist authors’ estimations of the world average rate of profit, the annual world production of physical gold, and the annual world economic output as measured in gold ounces (important!). No mainstream economist that I know—even Austrian goldbugs—think that world gold production has a casual role in world economic cycles.
If this sounds cuckoo, I suggest reading these two short articles: “On gold’s monetary role today” https://critiqueofcrisistheory.wordpress.com/a-reply-to-anonymous-on-golds-monetary-role-today/ “Can the capitalist state ensure full employment by providing a replacement market?” https://critiqueofcrisistheory.wordpress.com/can-the-capitalist-state-ensure-full-employment-by-providing-a-replacement-market/
Yes, it does not surprise me that most economists were wrong about the expected inflation from quantitative easing. They could not foresee that most of this money would not enter circulation or act as a basis for additional multiples of credit creation on top of it that would enter circulation. They could not foresee that this QE money would sit inert for the time being as “excess reserves” due to central bank payment of interest on these excess reserves that was competitive with other attainable interest rates on the market. In reality, these excess reserves—so long as interest is paid on them—are not typical base money, but instead themselves function more like interest-bearing bonds. Heck, I didn’t even have to know anything about Marxism to anticipate that!
Now, here’s a concrete prediction: if the Federal Reserve were to decide to cease all payment of interest on excess reserves without also at the same time unwinding the QEs, leaving a permanently-swollen monetary base of token money that then has the incentive to be activated as the basis for many multiples of loans to be made on top of it—then you will see continued depreciation of the dollar with respect to gold.
Thankfully, though, I am not relegated to trying to mind-read what the Federal Reserve will do because my strategy of trading between equities and gold is only concerned with the relative prices between those two. I will come out ahead in real terms by correctly timing relative changes in their prices, regardless of whatever happens to their nominal dollar prices as a result of Federal Reserve shenanigans. And I would argue that, on average over the medium to long run, the Federal Reserves operations are neutral with respect to these relative prices. The Federal Reserve can change the nominal form of crises (whether they take the appearance of unemployment, dollar-inflation, or some intermediate admixture of the two like 1970s stagflation), but the Federal Reserve cannot actually influence the relative movements of equities and gold. If, thanks to incredibly dovish Federal Reserve policy in response to the onset of a crisis, equities continue to appreciate in dollar terms, gold will be appreciating even more.
Interesting. I wish you luck, though I’d still recommend you not commit all your financial resources to this particular strategy.